UBS Sued For $500M Over Margin Loan Losses

High Net Worth Individual Investor Alleges That UBS Group AG Persuaded Him To Buy On Margin

Guo Wengui, a rich Chinese businessman exiled in New York, has filed a lawsuit against UBS Financial Group after losing $500M.

Wengui contends that the bank pressured him into borrowing funds to invest in shares of Haitong Securities, Co., a brokerage firm in China. This high net worth institutional investor alleges that in 2015, UBS forced the stock’s sale during both a 45% drop in Haitong’s shares, which were traded in Hong Kong and a market route. Guo said that he lost his entire investment.

According to his legal team, it is against UBS Group policy to make margin calls involving customers like Guo when prices connected to a loan are moved in the short term. Guo claims that he didn’t know that the bank had added margin call agreements into their contracts.

Our investment fraud lawyers at Shepherd Smith Edwards and Kantas (SSEK Law Firm) represent individuals with a net worth of $1M or greater in their broker fraud claims against financial firms and their registered representatives. We also represent wealthy investors living abroad with claims against broker-dealers based in the United States.

What Classifies as Margin Account Losses?

An investor that buys on margin typically will have purchased securities using both their own money and financing.

With this kind of deal, the securities that were bought act as collateral for the rest of the investment.

Should the collateral plunge in value below a certain amount, the brokerage firm is allowed to increase its own position. This is usually referred to as a margin call.

When this happens, the investor has to add more money to the account. A failure to do this within a given timeframe will allow the firm to begin liquidating the investor’s securities to make the account’s value greater.

Buying on margin is high risk and typically only suitable for those individuals that are wealthy and experienced investors.

Guo contends that he had wanted to invest $1B of his own money but that UBS Group recommended that he only use $500M and the firm said it would lend him the rest. He claims that the financial firm recommended that he structure the deal via an intermediary so as to get around breaching thresholds that would have required him to disclose his holding.

Eventually, as Haitong shares fell, the bank would issue a margin call and Guo was ordered to transfer over at least $200M to the account within 24 hours, which he was unable to do. He alleges that after getting rid of the stock, UBS handed over the losses to him. The bank returned just $4.7M of the $500M that he had invested.

Guo initially tried to sue the financial firm in New York. However, the case was dismissed there on the grounds of a lack of proper jurisdiction. He has now submitted this claim in London.

UBS Investor Fraud Claims

SSEK Law Firm has been fighting for high net worth individual investors, as well as institutional clients and retail investors, for 30 years.

We’ve gone after UBS Financial Group on multiple occasions on their behalf, most recently over: its UBS Yield Enhancement Strategy (YES) and the Puerto Rico bond funds and closed-end bond funds that its brokers marketed to customers, even as they knew that these investments were failing.

Thousands of UBS customers have suffered significant losses from both recommendations, even as the firm earned significant commissions and fees. Contact us today so that we can help you explore your legal options.